I was writing this into my monthly portfolio writeup, and decided it probably warranted its own thread, since I’d love to hear from anyone else that has looked into this company already, as I am fairly new to it myself.
Last quarter’s press release Q2’21:
https://investors.applovin.com/news/news-details/2021/AppLov…
Bert did a good writeup on Applovin in his Ticker Target newsletter, which is what first got me intersted in the company. I took a small 2% “try-out” position about three weeks ago which has already rised about +22%, although possibly somewhat lucky with the timing.
Background
AppLovin (APP) is a recent IPO earlier this year, in April. They work with developers to moetize and publish apps through its mobile advertising, marketing, and analytics platforms MAX, AppDiscovery, and SparkLabs. And they work with mobile game developers to promote mobile games.
I beleive their business overlaps/competes a bit with ironSource which has had some discussion on the board recently.
So they are definitely beholden to some of the apple IOS IDFA privacy changes risk that has spooked (halloween pun intended) investors of all digital ad companies lately.
Revenue Growth
APP is also not going to be 100% organic, not by a long shot, as they just acquired a company called MoPub from Twitter for about $1.1 billion dollars, which they’ll be using a new term loan to finance.
https://investors.applovin.com/news/news-details/2021/AppLov…
So why own it? Revenue has grown over the past four quarters YOY
+46% Q3’20
+83% Q4’20
+132% Q1’21
+123% Q2’21
and this doesn’t include the MoPub (former Twitter company) acquisition at all yet. However they did acquire another company called Adjust back in February. Their organic growth in Q2’21 was still +97% (of the 123% above)
Sequentially in the past four quarters (oldest to most recent, left to right), +28%, +34%, +18%, +11%
So sequential growth is slowing, but five quarters ago sequential growth was +15% (equivalent quarter of last year that most recently had 11% sequential growth) so maybe there is some seasonaility there, but I’m not sure yet.
They didn’t provide guidance during their last earnings release in August, I believe because there were uncertainties about the Apple IDFA privacy standard.
Software Business hyper growth
But their software business is even more so in hyper growth, increasing revenue +256% YOY (+203% organic) last quarter, and now represents about 22% of total revenue. Smaller, but growing.
Their customer count of software platform clients (software customers with at least $31.5k over the past 3 months representing a run rate of $125k/year) increased +218% too.
Overall
Their margins are currently around 60% overall, but the faster growing software business’ margins are only about 33%.
And the valuation seems pretty darn cheap, with the rolling 12 month Price to Sales of less than 17x (it was only about 13x when I bought my shares a few weeks ago), which for a company growing around 100% organically, with faster growing subscription business growing 200%, is not a high valuation at all. Certainly the apple IOS IDFA risk is a factor. Integration risk of the big new acquisition could be as well.
It definitely seems to be a high risk, high reward situation.
They report earnings November 10th so I’ll be interested to see what they report, especially any new guidance, and the overall tone on the call.
-mekong